RESP: Education Savings & Grants Guide

Government Grants

Canada Education Savings Grant (CESG)

• Basic CESG: 20% on first $2,500 contributed = $500/year
• Lifetime maximum: $7,200 per child
• Eligibility: Children under 18 with SIN
• Carryforward: Unused grant room carries forward

Additional CESG (Low Income)

Extra 10-20% on first $500 for lower-income families:

• Family income under ~$53,000: Additional 20%
• Family income ~$53,000-$106,000: Additional 10%
• Maximum extra: $100/year

Canada Learning Bond (CLB)

• For low-income families
• $500 initial bond + $100/year up to age 15
• Maximum $2,000 per child
• No contribution required

Contribution Rules

Limits

• Annual CESG limit: $500 (on $2,500 contribution)
• Catch-up: $1,000 CESG/year (on $5,000 contribution)
• Lifetime limit: $50,000 per beneficiary
• No annual limit: But grant only on first $2,500

Optimal Strategy

• Contribute $2,500/year to maximize CESG
• If behind, contribute $5,000/year to catch up
• Start at birth to maximize grant years

Plan Types

Individual RESP

• One beneficiary only
• Beneficiary can be anyone (including yourself)
• Simpler administration
• Can transfer to sibling if needed

Family RESP

• Multiple beneficiaries (must be related by blood or adoption)
• Funds can be shared among siblings
• Grants stay with original child unless transferred
• More flexibility if one child doesn't pursue education

Group RESP

• Pooled plans through scholarship trusts
• Rigid rules and contribution schedules
• High fees common
• Generally not recommended—use self-directed instead

Investment Options

Self-Directed RESP

• Choose your own investments
• Stocks, bonds, ETFs, mutual funds, GICs
• Lowest fees (especially with ETFs)
• Available at banks, brokerages

Investment Strategy

• Early years: Higher equity allocation
• Approaching education: Shift to bonds/GICs
• Target date funds: Automatic adjustment
• Risk tolerance: Less time = less risk capacity

Withdrawals (EAPs vs PSE)

Educational Assistance Payments (EAP)

• Grants + investment earnings
• Taxable to the student (usually low/no tax)
• Must be enrolled in qualifying program
• Limits: $8,000 in first 13 weeks, unlimited after

Post-Secondary Education (PSE) Payments

• Return of your contributions
• Tax-free (already taxed when earned)
• No limit on withdrawals
• Withdraw anytime student is enrolled

Withdrawal Strategy

• Maximize EAPs each year (to use student's low bracket)
• Withdraw PSE as needed for remaining expenses
• Plan over multiple years of education

Qualifying Educational Programs

Full-Time

• University, college, CEGEP
• At least 10 hours/week of instruction
• Minimum 3 consecutive weeks

Part-Time

• Post-secondary level
• At least 12 hours/month of courses
• Minimum 3 consecutive weeks
• EAP limit: $2,500 per 13-week period

Also Qualifies

• Trade schools and apprenticeships
• Foreign universities (many countries)
• Some professional certifications

If Child Doesn't Go to School

Wait and See

• RESP can stay open 35 years after opening
• Child may pursue education later
• No penalty for waiting

Transfer to Sibling

• Change beneficiary to another child
• Grants stay if new beneficiary has room
• No tax implications

Transfer to RRSP (AIP)

• Transfer up to $50,000 of earnings to your RRSP
• Need RRSP contribution room
• Plan must be at least 10 years old
• Beneficiary must be 21+ and not pursuing education

Collapse the Plan

• Grants returned to government
• Contributions returned tax-free
• Earnings (AIP) taxed at your rate + 20% penalty
• Last resort option

Tax Benefits

For Subscriber (Parent)

• Contributions are NOT tax-deductible
• Growth is tax-sheltered
• No tax on contributions when withdrawn

For Beneficiary (Student)

• EAPs taxed as their income
• Usually little/no tax due to low income
• Basic personal amount shelters first ~$15,000
• Tuition credits offset remaining tax

RESP Strategies

Start Early

• More years to collect CESG
• Longer compounding period
• Can start immediately after birth (get SIN first)

Catch-Up Contributions

• If you start late, contribute $5,000/year
• Gets $1,000 CESG (current year + one year catch-up)
• Maximize remaining grant years

Grandparent RESPs

• Grandparents can open RESP for grandchild
• Gifts to parents for their RESP are also common
• Consider family plan for flexibility

Provincial Grants

Quebec Education Savings Incentive (QESI)

• 10% on first $2,500 ($250/year)
• Lifetime max $3,600
• Additional for low-income families

BC Training and Education Savings Grant

• $1,200 one-time grant
• Children born 2006 or later
• Apply between ages 6-9

Common Mistakes

• Over-contributing: Exceeding $50,000 lifetime creates penalties
• Missing catch-up: Only $1,000 CESG per year max, can't catch up all at once
• Group plan fees: High costs erode returns
• Not using grants: Leaving free money on the table
• Forgetting BC grant: Must apply by age 9